Market segmentation

Market segmentation is a strategy that involves dividing a larger market into subsets of consumers who have common needs and applications for the goods and services offered in the market. These subgroups of consumers can be identified by a number of different demographics, depending on the purposes behind identifying the groups. Marketing campaigns are often designed and implemented based on this type of customer segmentation.

The key task is to find the variable, or variables that split the market into actionable segments

There are two types of segmentation variables:

(1) Needs

(2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.

Profilers are the descriptive, measurable customer characteristics (such as location, age, nationality, gender, income) that can be used to inform a segmentation exercise.

The most common profilers used in customer segmentation include the following:

Profiler Examples

Geographic

• Region of the country
• Urban or rural

Demographic

• Age, sex, family size
• Income, occupation, education
• Religion, race, nationality

Psychographic

• Social class
• Lifestyle type
• Personality type

Behavioural

• Product usage - e.g. light, medium ,heavy users
• Brand loyalty: none, medium, high
• Type of user (e.g. with meals, special occasions)

Effective market segmentation

• Improves understanding of the customer base
• Provides a clear classification of the customers
• Enables the generation of a targeted product portfolio that responds to the needs of the market place
• Helps gauge a company's market position relative to the competition
• Leads to the effective fine tuning of marketing strategies